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You can earn more by strategically cashing out and buying a top-ranked CD
By
Sabrina Karl
:max_bytes(150000):strip_icc()/SabrinaKarlBio-fec3f52216e94fc5b9dfea3f4b794140.jpeg "Have I Bonds? Your New Rate Is Likely 3.94%—Not the 5.27% You Read About (1)")
Full Bio
Sabrina Karl has over two decades of experience writing about savings, CDs, and other banking topics. She is currently a staff writer at Investopedia and one of the country's top experts on how to earn as much as possible on the money you hold in the bank. She previously wrote for Bankrate.com, CreditCards.com, DepositAccounts.com, and RateSeeker.
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Updated November 07, 2023
:max_bytes(150000):strip_icc()/Portra-832cbae14bdd44b79f9d0f46091fa2cf.jpg "Have I Bonds? Your New Rate Is Likely 3.94%—Not the 5.27% You Read About (2)")
Key Takeaways
- The U.S. Treasury announced this week that I bonds purchased between November 2023 and May 2024 will earn 5.27% for the first six months.
- If you already own I bonds, however, your next six-month rate will be considerably lower, since every I bond's rate calculation is specific to its issue date.
- If you got an I bond between November 2021 and October 2022—when the rate climbed as high as 9.62%—your new six-month rate will be 3.94%.
- Today's best CDs are paying record rates—ranging from 5.00% to 6.50% APY—which you can lock in for months or years down the road.
- If you've held your I bond for at least a year, you can move your funds to a better-paying CD. The issue date of your bond can tell you the optimal time to cash in, with 15 months being the sweet spot for many 2022 bond purchasers.
Understanding the New I Bond Rate Announcement
The way I bonds work is that their rate changes every six months based on current inflation rates—which is why they're called I bonds. But the rate is actually made up of two parts. One is fixed for the life of the I bond—assigned to your bond at the time of purchase—while the other component is indexed to inflation and adjusts every six months.
Adding the fixed and variable components together provides the composite rate for a particular I bond for a current six-month period. Then six months later, the variable inflation portion will adjust, and be added again to the original fixed rate. This continues for as long as you own the bond.
Treasury announced this week a new six-month rate that has both a higher inflation factor and a higher fixed-rate factor. First, everyone will receive a new inflation component of 3.94% (i.e., an annualized figure for the 1.97% semiannual inflation rate). For the previous rate announcement, on May 1, the inflation factor was 3.38%, meaning the new six-month rate increased about a half percentage point due to higher inflation readings this time.
But what has an even bigger impact this cycle is that anyone buying a new I bond between November 2023 and May 2024 will receive a fixed-rate component of 1.30%. That is notably higher than the 0.00% fixed rate assigned to I bonds purchased last year, and explains why new I bonds purchased today will pay a higher rate of 5.27% for the initial six months, while 2022 I bonds will only pay 3.94%.
| I Bond Issue Date | Fixed-Rate Assigned for the Life of the Bond | Current Inflation Component | Today's Composite Rate* |
|---|---|---|---|
| Nov 2023 - May 2024 | 1.30% | 3.94% | 5.27% |
| May 2023 - Oct 2023 | 0.90% | 3.94% | 4.86% |
| Nov 2022 - Apr 2023 | 0.40% | 3.94% | 4.35% |
| May 2022 - Oct 2022 | 0.00% | 3.94% | 3.94% |
| Nov 2021 - Apr 2022 | 0.00% | 3.94% | 3.94% |
As a result of different fixed rates being assigned to each group of I bonds at the time of purchase, you can see below how the six-month composite rates vary over time for different bond issue dates.
| Bond Issue Date | APY for Months 1-6 | APY for Months 7-12 | APY for Months 13-18 | APY for Months 19-24 | APY for Months 25-30 |
|---|---|---|---|---|---|
| Nov. 1, 2023 - Apr. 30, 2024 | 5.27% | Unknown | Unknown | Unknown | Unknown |
| May 1 - Oct. 31, 2023 | 4.30% | 4.86% | Unknown | Unknown | Unknown |
| Nov. 1, 2022 - Apr. 30, 2023 | 6.89% | 3.79% | 4.35% | Unknown | Unknown |
| May 1 - Oct. 31, 2022 | 9.62% | 6.48% | 3.38% | 3.94% | Unknown |
| Nov. 1, 2021 - Apr. 30, 2022 | 7.12% | 9.62% | 6.48% | 3.38% | 3.94% |
Today's Best CDs Pay More than 2022 I Bond Rates
If you don't need your funds for a while, the decline of I bond rates at the same time that CD rates have skyrocketed presents a lucky opportunity. For instance, you could cash in your I bonds and move that money to a 6-month or 1-year CD paying above 6%. Or you could lock in a record rate for longer, such as a 2-year CD paying 5.60%. Maybe you don't need your money for years, and are interested in guaranteeing a 5.00% rate for five years.
While it's possible I bond rates could climb higher again, odds are arguably greater they'll decline in 2024. That's because the Federal Reserve remains committed to fighting inflation until it comes down to the Fed's target level of 2%. There's of course no crystal ball to know if and when inflation will fall to that level. But the Fed's focus on its inflation goal is strong and persistent.
Unlike I bonds, certificates of deposit have the great advantage of promising one APY that you will be guaranteed for the CD's full term. So there is no guessing game about what you'll earn in the future, and what the Fed does with rates will have no bearing on the return of any existing CD you already hold. With CD returns at their highest levels in more than 20 years, it's an excellent time to secure one of these locked-in rates.
Interest paid on CDs is taxed like all other income at the federal and state level, but I bond earnings are exempt from state and local taxes. So to do a direct comparison between I bond and CD earnings, you’d need to account for the state income tax you’d pay on the CD interest. Still, if a CD rate is substantially higher than your current I bond rate, you’ll end up earning more with the CD.
21 Best CD Rates for July 2024: Up to 6.00% APY
Don't want to commit your I bond funds to a CD? You can also move your money to one of the best high-yield savings accounts or best money market accounts, which are currently paying rates as high as 5.40% and 5.35% APY, respectively. But keep in mind that savings and money market account rates are variable, meaning they can go down at any time and without notice.
Choose Your I Bond Withdrawal Date Carefully
Money held in I bonds can be withdrawn anytime after you've held the bond for a year. But there's a catch—and you'll want to choose your timing carefully. For any I bond cashed in sooner than five years from its issue date, you'll incur a penalty. Fortunately, the penalty can be fairly mild if you time it right.
The early withdrawal penalty is calculated as the last three months' worth of interest. But since your I bond rate changes every six months, that means your penalty will depend on when you withdraw. If you cash out during a high-rate period, you'll have a bigger penalty, while your penalty will be reduced if you withdraw during a lower-rate period.
Using I bond buyers who bought between May and November of 2022 as an example, if you cash out right at 12 months, the last three months of your interest rate was 6.48%. And as a result, your penalty will cause you to forfeit three months of earning that stellar return.
But if you can wait until you're three months into the lower rate tier—so at the 15-month mark or beyond—your penalty will forfeit three months of the much lesser 3.38%. Since that rate is not especially competitive—and you can do much better elsewhere—it's a minor penalty, making it a smart time to move your money somewhere new.
Best Day of the Month to Withdraw I Bond Funds
Monthly interest for I bonds is always paid on the first of the month, and is not pro-rated throughout the month. So whether you cash out on Dec. 1 or Dec. 30, you'll receive the same December interest payment and nothing more until January. So it's smart to withdraw as early as possible in a month—ideally on the 1st—so you can as quickly as possible begin earning higher interest elsewhere.
Although the above example applies to bonds purchased between May and October of 2022, the same logic applies to bonds purchased in the previous 6-month period, but with a slightly later sweet spot. That's because I bonds purchased between November 2021 and April 2022 are still earning 6.48% through Month 18, so it's better to wait until Month 21—when the rate has been 3.38% for three months—to cash out.
Fortunately, it's easy to determine your own penalty-minimizing withdrawal date. Just identify the issue month of your I bond and then find it in one of our tables below.
For I Bonds Issued November 2021 - April 2022
| I Bond Issued on Any Date in This Month | If you cashed in after 12 months, you gave up 3 months of this rate | If you cashed in after 15 months, you gave up 3 months of this rate | If you cash(ed) in after 21 months, you gave up/will give up 3 months of this rate | Date you reach(ed) 21 months and minimize(d) your penalty |
|---|---|---|---|---|
| Nov 2021 | 9.62% | 6.48% | 3.38% | Aug. 1, 2023 |
| Dec 2021 | 9.62% | 6.48% | 3.38% | Sep. 1, 2023 |
| Jan 2022 | 9.62% | 6.48% | 3.38% | Oct. 1, 2023 |
| Feb 2022 | 9.62% | 6.48% | 3.38% | Nov. 1, 2023 |
| Mar 2022 | 9.62% | 6.48% | 3.38% | Dec. 1, 2023 |
| Apr 2022 | 9.62% | 6.48% | 3.38% | Jan. 1, 2024 |
For I Bonds Issued May 2022 - October 2022
| I Bond issued on any date in this month | If you cash in after 12 months, you'll give up 3 months of this rate | If you cash in after 15 months, you'll give up 3 months of this rate | Date you reach 15 months and minimize your penalty |
|---|---|---|---|
| May 2022 | 6.48% | 3.38% | Aug. 1, 2023 |
| Jun 2022 | 6.48% | 3.38% | Sep. 1, 2023 |
| Jul 2022 | 6.48% | 3.38% | Oct. 1, 2023 |
| Aug 2022 | 6.48% | 3.38% | Nov. 1, 2023 |
| Sep 2022 | 6.48% | 3.38% | Dec. 1, 2023 |
| Oct 2022 | 6.48% | 3.38% | Jan. 1, 2024 |
If you have an issue date between November 2022 and April 2023, you're better off cashing out after the 12-month mark than the 15-month mark. That's because the rate for I bonds issued during that time declined to 3.79% already in Month 6, and by Month 13, the rate increased to 4.35%. So if cashing out is your goal and you want to minimize your penalty, it would be wise to withdraw just after hitting your 1-year anniversary.
Rate Collection Methodology Disclosure
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000.
Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
Editor's Note: This article was updated on Nov. 7, 2023, to include more information regarding the taxation of interest earned on CDs and I bonds. It was originally published on Nov. 3, 2023.
Correction—Dec. 1, 2023: This article has been corrected to state that I bonds redeemed on the first day of the month will successfully capture that month's interest payment.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
TreasuryDirect. "I Bonds at a Glance."
TreasuryDirect. "Series I Savings Bond Earnings Rates Effective November 1, 2023."
TreasuryDirect. "Tax Information for EE and I Bonds."
TreasuryDirect. "Questions and Answers About Series I Savings Bonds."
Related Terms
What Are Series I Bonds? Rates, Risks, Taxes Explained
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CD Early Withdrawal Penalty
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Variable-Rate Certificate of Deposit (CD): Meaning, Example, FAQs
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CD Ladder: What It Is and How to Build One
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